NiSource prunes its dividend 20%, avoids downgrade

Moody's affirms utility's rating

NiSource Inc. announced Tuesday that it will cut its dividend 20 percent, from $1.16 a share on an annual basis to 92 cents a share, a move that will save the company more than $60 million annually.

The news prompted Moody's Investors Service almost immediately to affirm the Merrillville, Ind.-based energy holding company's investment-grade credit rating as stable. The ratings agency had placed NiSource on review in May for possible downgrade, citing the utility's total debt of $6.7 billion as of March 31.

Shares of NiSource closed Tuesday at $19.08, down 29 cents, or 1.5 percent, on a day when many utility stocks lost ground. NiSource is the parent of Nipsco, an electric and gas utility serving northern Indiana.

"The rating agencies wanted to see something more from the company, with Moody's latching onto the idea of a dividend reduction," said Peggy Jones, an analyst with ABN Amro Securities.

But NiSource had resisted the idea, and Gary Neale, NiSource's chief executive, reiterated the company's commitment to its quarterly dividend as recently as the company's annual meeting in May.

"NiSource was scrambling to avoid a downgrade--the dividend was going to be the last lever to pull," said Paul Ridzon, an analyst with McDonald Investments.

The company already sold 41.4 million new shares last November, raising $734.9 million earmarked for debt reduction. And just last week, it announced $665 million in non-core asset sales.

NiSource has struggled with its debt burden since its 2000 merger with Virginia-based Columbia Energy and has paid down $1.6 billion in debt since 2001.

With the asset sales announced last week, NiSource has eliminated its two significant remaining non-regulated businesses and returned to core regulated natural gas and electricity businesses.

The dividend reduction will take effect with the November 2003 quarterly dividend, which is expected to be payable at 23 cents a share. The dividend to be paid Aug. 20 already has been declared at 29 cents a share.